Chapter 7: Measuring Human Resources Management PDF

 Chapter 7: Measuring human resources management within organisations  Learning outcomes After reading this chapter, you should be able to: Explain the strategic role played by human resources management in the 21st century Debate the importance and ben...

 Chapter 7: Measuring human resources management within organisations  Learning outcomes After reading this chapter, you should be able to: Explain the strategic role played by human resources management in the 21st century Debate the importance and benefits of measuring human resources management performance by adopting a data-driven approach Describe the principle of adopting a value chain approach to human resources management measurement Illustrate how to build a human resources management analytics function from the ground up Distinguish between metrics and analytics in human resources management measurement Identify human resources management key performance indicators in the context of the human resources management Balanced Scorecard Develop an effective human resources management reporting strategy.  The contribution of HRM to the bottom line There has been a shift from viewing the HRM contribution from a systems angle to viewing it from an integrated and strategic angle. Successful businesses function around a set of core metrics. HR practitioners must design strategies to attract and retain talent. They must track trends in turnover, absenteeism, and compensation. HRM must understand the organisation’s strategic key performance indicators (KPIs) and link these to people measures. HRM needs to deliver appropriate HRM measurement reports to all levels of management, and to use the information contained in these reports to help the organisation meet its strategic targets aligned with its KPIs. The strategic role of human resources management in the 21st century The role of HRM is to build processes and practices that align managers and employees with organisational goals and objectives. In fulfilling the role of a strategic business partner, HRM also needs to be a predictor of the future. It must identify required organisational competencies and engage in effective workforce planning and optimisation. HRM can only become a true business partner when it can quantify its influence in the organisation and actively influence business decisions. If HRM is unable to do this, it remains a business assistant. Yet it is not for HRM to determine its own objectives. Do HRM practices have a direct impact on productivity or impact on mediator variables, which impact on organisational performance? The strategic role of human resources management in the 21st century, cont. With globalisation comes challenges in terms of organisational flexibility, the migration of workforces, virtual working arrangements, and the need to promote culturally inclusive workplaces. The global war for talent continues. Surveys conducted among CEOs reveal a concern for finding certain key skill sets. The makeup of the workforce is diverse in many ways, including age. Flexible and virtual working arrangements are becoming widespread. Advancements in technology and AI influence workplaces. Ethics and corporate governance are organisational prerequisites, and disclosure on issues relating to human capital is one way to measure them.  A data-driven approach to measuring HRM performance Most organisations have implemented tools and techniques for measuring organisational performance. The organisation’s tangible assets can be easily quantified. Intangible assets, including people, are less easy to measure. But people are key in order to get returns on investments. To be taken seriously by line management, HRM must be able to report on the value it adds. HRM should focus on the results of the work they perform, instead of on the work itself, through explaining why they do what they do. This is achieved through measuring and reporting.  HRM analytics HRM analytics is the process of collecting and analysing HR data in order to improve an organisation’s workforce performance through driving effective HRM processes, practices, and systems. HRM analytics powers innovations through predictive models. Innovations in workforce planning Predictive models Transactional data  HRM analytics, cont. HRM analytics can improve people management through: o Better workforce planning o Improved recruitment o Improved retention o Better compensation and incentive programmes o Improved employee engagement o Improved employee performance o Better employee development. o The shaping of organisational culture.  HRM analytics, cont. HRM analytics can also lead to benefits at the organisational level. Data can be used in decision-making to deliver on strategic goals, and in this way offer a competitive advantage. Data also helps us avoid human bias when making decisions. Through evidence-based HRM, data-based evidence can be used to redirect money to value-adding employee initiatives. The return on investment (ROI) can also be quantified. Data also allows HRM to influence strategy, because HRM can use these numbers to have ‘business conversations’ with management. People analytics can help to assess the workload and the impact on employees, and to ease this when appropriate.  A value chain approach to HRM measurement A value chain can be considered as a series of events that are connected, and that work together to achieve a desired result. Employee Learning & relationshi developmen Rewar d p t managem ent Workforce Performan Wellne Organisational planning ce ss development Many research studies show that positive relationships exist manageme between HRM practices, nt HRM outcomes, and organisational outcomes.  The SABPP HR Management System Standards Model The South African Board for People Practices (SABPP) is the professional board for HR practitioners in South Africa. The SABPP produced a three-tier model of HR management system standards, which appears on the next slide. The top tier of this model shows elements that must be managed to allow the alignment of HRM to business strategy. The middle tier shows the functional architecture of HRM, including the HRM value chain, HR service delivery, and HR information systems. The bottom tier shows HR measurement, which should be overseen by an HRM analyst capable of measuring the bottom- line impact of HRM. The model uses a cyclical quality management approach of: preparation, implementation, continuous improvement, review. Figure 7.1 The SABPP HR Management System Standards Model  Measurement and the HRM value chain The HRM value chain describes the processes through which people are managed to achieve organisational outcomes. In adopting a value chain approach, HRM measurement can be divided into two categories: HRM activities and HRM outcomes. HRM activities include day-to-day such as recruitment and compensation. HRM outcomes are the goals being aimed for through HRM activities. Efficiency metrics are used to measure HRM activities to reduce costs. Outcome metrics are used to measure whether goals are being met. Outcome metrics matter more than efficiency metrics.  The HRM analytics function HRM provides both HRM and management with valuable insights. An HRM analytics function focuses on solving problems that the organisation has in reaching its strategic goals. Root-cause analysis can be used in HRM analytics.  How to build an HRM analytics function When building an HRM analytics function: 1. Outline the desired impact and direction 2. Create the HRM analytics team 3. Assess your team’s existing HRM analytics competencies 4. Identify the right partners to build capabilities 5. Gain momentum by aiming for early wins 6. Ensure adherence to ethical conduct 7. Measure the impact of the HRM analytics function and ensure the satisfaction of key stakeholders.  The role of metrics and analytics in HRM measurement People are often an organisation’s most costly asset. This makes it important for organisations to use data to determine how effective the ‘people spend’ is. Metrics describe measures of past performance. Analytics use information to anticipate future trends.  The three main characteristics of high impact HRM measures 1. The 3. The ability to 2. The ability ability to explain what to provide assess is happening information on issues while in the people while driving organisation creating a link continuous and why to overall performanc business e performance  HRM metrics: The basis of HR analytics and HRM KPIs HRM metrics form the information used to quantify, measure, and track the performance of the organisation’s human capital. They come in two types: o Quantitative metrics, which are expressed as numbers, are regarded as more reliable in providing information on, for example, absenteeism, turnover, and training spend. o Qualitative metrics, which are generally observations or patterns observed in non-numerical data, are used to provide insights into general trends, such as employee attitudes, motivation, and satisfaction, and are regarded as more subjective and inconclusive.  HRM metrics: The basis of HR analytics and HRM KPIs, cont. HR productivity metrics measure the ability/efficiency/effectiveness of the HRM function to do its administrative tasks. These are linked to HRM activities. Human capital metrics measure the optimisation of the human capital of the organisation. These are linked to HRM outcomes. Headcount is critical for many metrics. Sometimes this refers to full-time employees and sometimes to full-time equivalents (FTEs). Categories of HRM measurement  HRM analytics HRM analytics is a subset of business intelligence. Analytics refers to strategies for combining data elements into metrics and examining relationships or changes in these metrics, and then using an understanding of these to inform decision- making. HRM analytics allow HR practitioners to connect the dots between people data and business outcomes. HRM analytics involves the use of data instead of, or in addition to, instinctive feelings in making decisions. When HRM departments employ analytics, they speak the same language as other departments in the organisation – numbers.  Types of HRM analytics Descriptive analytics reports on what is happening in the organisation. Diagnostic Predictive analytics analytics reports reports on why on what is likely to something is happen in the happening in future and why. the Prescriptive analytics organisation. assists in proposing actions and strategies in terms of what needs to be done. The value and difficulty of HRM analytics  HRM key performance indicators Key performance indicators (KPIs) are strategic metrics that are used to measure how well organisational objectives have been met. HR KPIs are metrics that determine how successful HRM is in realising the organisation’s HRM strategy. In choosing relevant HRM KPIs, HRM thinking needs to align with the strategies and objectives of the entire team. HRM can add tremendous value to the organisation by creating a specific set of appropriate, consistent, and unique KPIs. HRM KPIs must be selected in a proactive manner. Examples of HRM KPIs The characteristics of a good set of KPIs A good set of KPIs will be: o Few in number (usually 4 – 10) o Simple enough to understand o Correlated to organisational outcomes o Balanced between financial and non-financial outcomes o Aligned with each other o Drillable to allow insight into the root of the problem o Referenced in terms of their origin and context o Actionable o Owned. The SMART framework for setting objectives  Lagging and leading KPIs Lagging KPIs Leading KPIs A lagging KPI refers to A leading KPI is future- past development and focused. effects. They are typically related to output, are easy to They are typically input- measure, but hard to oriented, hard to influence. Lagging KPIs are seen to measure, and easy to constitute descriptive and influence. diagnostic metrics. Leading KPIs refer to predictive and  Strategic impact metrics These strategic impact metrics are seen as valuable to organisations wanting to assess the value-add of HRM: o Human capital return on investment (HROI) (expressed as a ratio of profit to employee compensation) o New hire performance index o New hire satisfaction metrics o New hire failure rate o Turnover of new hires (with reasons why) o Quality talent sources o Diversity/inclusivity index o Engagement metrics o Manager satisfaction metrics.  Developing a HRM reporting strategy Start with the overall business strategy and adopt a top-down approach to developing a HRM reporting strategy. Determine the measures that matter. Then determine the tools and capabilities that the organisation has to report on the achievement of HRM objectives. Traditionally metrics were reported to senior executives only. Now managers at lower levels of the organisation are included. These managers can make immediate use of the information in tactical and operational decision-making. Users should be able to choose data based on their needs.  Approaches to reporting There are three ways to report on HRM strategy: o HRM reports (organised presentations) o HRM dashboards (visual interactive presentations) o HRM scorecards (snapshots of HRM performance).  The Balanced Scorecard The Balanced Scorecard was developed by Kaplan and Norton in the 1990s. It is used by managers to consider their business performance from four perspectives: 1 2 3 1. A financial perspective 4 2. A customer perspective 3. An internal business process perspective 4. A learning and growth perspective. The Balanced Scorecard would usually be created by the HRM analytics team. However, the Balanced Scorecard needs to be cascaded down the organisation to all levels. The Balanced Scorecard  The HRM scorecard The HRM scorecard allows the HRM department to indicate how HRM influences the productivity of the organisation through the development and analysis of appropriate metrics aimed at increasing the efficiency and effectiveness of the organisation. It may take the form of a spreadsheet or an HRM IT tool that indicates the KPIs used to demonstrate the performance of the organisation. The HRM scorecard allows the organisation to manage HRM as a strategic asset. It is important that the scorecard is not only about measurement but that it ‘tells the story’ about the organisation’s strategy. The HRM scorecard should be a dynamic entity that is subjected to ongoing scrutiny.  Building the HRM scorecard Three key elements when building an HRM scorecard: o Directly link every element on the scorecard to business outcomes. o Include all significant drivers of business outcomes on the scorecard. o Communicate the value of the scorecard to managers at all levels of the organisation. The HRM scorecard identifies the strategic HRM deliverables (points of intersection between the HRM strategy and the organisational strategy). There are two categories of HRM deliverables: o HRM performance drivers (e.g. employee productivity) o Enablers (e.g. reskilling, if employee productivity is a performance driver). Once built, the scorecard should allow proactive action to be taken in relation to leading indicators. Linking the HR scorecard to the business scorecard